This is the true art and skill of an appraiser. He or she usually first obtains the sales prices of three properties that are as close to yours as possible that sold within the last two years. Next, the appraiser makes adjustments. If Home #1 is exactly like yours except that it has a two-car garage and you have only a two-car covered carport, then the appraiser must adjust the sales price of Home #1 accordingly. If that home sold for US Dollars 145,000, the appraiser might say, "That price is partially because of the garage. I think the garage added US Dollars 5,000 worth on increased value over a carport. I am going to adjust the price downward to US Dollars 140,000. If Home #1 had a carport, like the one I am appraising, it probably would have sold for only US Dollars 140,000."
If that is true, then your house is worth US Dollars 140,000. The appraiser makes a series of adjustments, some upward and some downward, until he or she is comfortable with placing a value on your home. The glaring problem for you is, how do you know how much that garage is worth? How do you know how much to adjust the sales price? If an appraiser will share that general information with you, do not be bashful about asking. That is easier if you are trying to buy something because he or she knows you must obtain a real appraisal in order to obtain a loan. If you are selling, appraisers will not want to share their information with you. You should hire a professional appraiser instead of trying to do it yourself. It will more than pay for itself in setting the right price, gaining credibility with buyers, and making the loan approval process faster for purchasers.
Generally speaking, business properties have sales prices based on a per-unit amount or based on something called the Net Operating Income (NOI) and the capitalization rate (cap rate) or sometimes based on the discounted cash flow.We will address all of these. They sound pretty complicated, but once someone explains the concepts, they will make sense and be easy for you to duplicate.
Many investors save time by using a rule of thumb to screen through many opportunities. It is not the most accurate method of analysis, but it will tell you if you want to spend more time evaluating the property more thoroughly. The per-unit value is one rule of thumb.Within any community, investors will know approximately what things are worth by reference to how many rentable units it has and the going price per unit. For example, apartment complexes are often compared based on a price per apartment, for somewhat similar sized complexes. Four-unit and six-unit apartment buildings might have sales prices that work out to US Dollars 85,000 per unit. Larger complexes have different economies of scale and are attractive to different buyers, so the price per unit might be US Dollars 120,000. Small, non-climate controlled, self-storage facilities with an average unit size of 100 square feet might sell for US Dollars 3,000 per unit. Hotel and motel prices typically work out to a certain amount per rentable room.You simply take the per-unit price, multiply it by your number of units, and arrive at something close to a value.
Some people use a rule of thumb called the gross rent multiplier. This is not very precise, but it helps them make buying decisions very efficiently. The actual ratios vary among markets. One example might be: "I will not buy any property unless I can buy it for no more than the monthly rent times 100." If the monthly rent you think you can charge is US Dollars 900, then you will pay up to US Dollars 90,000 to buy the property, and no more. You will need to talk to other investors to find out the rule of thumb for your marketplace. Be aware that this is a very unsophisticated measurement.You may overlook some excellent opportunities if you employ only the gross rent multiplier to make decisions. On the other hand, a commonly used, conservative gross rent multiplier will rarely land you in trouble with a poor purchase.
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07042010
1. Cancun Real Estate Investing
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